How are Scottish charities managing reserves? And what are the lessons for other UK charities? We take a deep-dive into this hot topic, with learnings from a recent Scottish Grantmakers event and a new report from Scottish Funders' Forum.
The management of charity reserves has become a hot topic for the sector since the pandemic and, with a cost of living crisis increasing uncertainty, the conversations are set to continue.
At an event held by Scottish Grantmakers on 22 February 2023, CFG's Director of Finance and Operations, Rui Domingues, set the scene and described what effective and modern reserves management looks like today. Joining Rui was Nick Addington from the William Grant Foundation and Elaine Wilson from Corra Foundation, both members of the Scottish Funders Forum.
Together they shared a groundbreaking new report on reserves management - 'Thinking about reserves'. The study, conducted by the Institute for Voluntary Action Research (IVAR), goes beyond the usual question of ‘why have reserves?’ with an in-depth study of more than 50 Scottish charities.
The findings set out how charity reserves can contribute to a dynamic and resilient third sector and, through case studies, demonstrates how organisations are thinking more creatively about how they build and use their reserves.
During the event, speakers and attendees explored a number of strategic issues, including how to communicate reserves policies to stakeholders, the need for greater trustee training and guidance, and how reserves can be innovatively managed to boost impact.
Watch a recording of the 'Effective and Modern Management of Reserves' event, kindly shared with permission from Scottish Grantmaker, below. And read on for a snapshot of the report's findings and key takeaways...
Thinking about charity reserves report
Commissioned by Scottish Funders' Forum and undertaken by Institute for Voluntary Action Research (IVAR), the ‘Thinking about charity reserves’ report was published in October 2022.
The research shines a light on charity reserves in Scotland but, as Ali MacLachlan, Chair of Scottish Grantmakers, noted at a recent event, "there is much learning and reflection throughout that is system-wide across the UK.”
Below are eight findings from the report and Scottish Grantmakers event:
Seven takeaways on reserves:
- According to the research, the main reason charities hold reserves is to sustain activities and services in difficult times. In the event of adverse financial or operating conditions, charities said that reserves would enable them to continue to fulfil their charitable objectives.
- For some charities, reserves can facilitate high risk and innovative work. Several charities see reserves as a source of flexible funds to take advantage of opportunities, particularly for financing new projects.
- Although charities recognise the importance of holding reserves, many operate with low levels. A significant minority of charities have reserves equivalent to less than three months expenditure.
- There is considerable variation in charity reserves management practices. At their best, charities adopt practices that facilitate strategic reserves management. These practices include:
- Trustees considering multiple factors to determine required reserves
- Reflecting on their own unique circumstances
- Maintaining a focus on the future
- Communicating their reserves policy effectively
- The involvement of skilled finance professionals with experience in the charity sector is a common contributor to strategic reserves management.
- The extent to which charities could manage reserves strategically is influenced by whether trustees were cautious or confident. More training and guidance helps.
- There is considerable variation in how charities explained their reserves policy. Clearly and accurately communicating reserves policies is important.
More resources on reserves
Thinking about reserves - thought leadership from Caron Bradshaw OBE, CEO, Charity Finance Group
Raid or replenish? A podcast from the team at Third Sector with guests Caron Bradshaw OBE and Pesh Framjee, CFG